A loan program for college costs

Nation's Business, Sept, 1988

A Loan Program For College Costs

As the doors of the nation's colleges and universities swing open this fall, the parents of many students are finding the task of financing a youngster's college education more difficult than ever.

College expenses continue to rise faster than the cost of living. Charges at public and private colleges this year are expected to increase an average of about 6 percent over last year, says the American Council on Education.

At the same time, business is emphasizing the importance of a better-educated work force. In fact, many businesses are eagerly looking for ways to help finance the costs of higher education for workers and their families.

One successful initiative is the private-sector loan program called ConSern. Within the past year it has begun filling an important need that is not being met by most government financial-aid programs, which often are available only to families with very limited financial resources.

Started several years ago in Washington as a local project, ConSern now is available nationwide. Under a recent effort by the U.S. Chamber of Commerce to extend the program to the business community, any company can participate in the program through membership in the U.S. Chamber.

"The growth of the program has been explosive under the partnership with the U.S. Chamber," says ConSern's founder and president, the Rev. John P. Whalen. There were fewer than 600 loans totaling less than $4 million in 1987, but ConSern expects to issue 15,000 loans worth $100 million this year. Loans could reach $150 million next year and $200 million in 1990.

By fall, through their companies' participation in ConSern, nearly one million employees and their families will be eligible to apply for loans, says Morna Conway, ConSern's senior vice president for marketing.

"The program is fast becoming an important employee benefit and a very affordable one," Whalen says. With ConSern, an employer can participate for as little as $25 a year, based on the number of employees.

Designed by a consortium of universities, backed by major financial institutions and administered by a nonprofit organization, ConSern makes loans available for a wide range of education-related expenses, including tuition, room, board, books and computers.

There is no family-income test. And ConSern's loan limits are higher than those for other education-loan programs. Under ConSern, a borrower can receive up to $25,000 each year, and up to $100,000 altogether. The borrower can take up to 15 years to repay.

The interest rate on ConSern loans is tied to the commercial paper rate, which is variable and historically far lower than the prime rate. The average ConSern loan interest rate during 1987 was 10.45 percent. The borrower pays a one-time discount fee of 3.5 percent to cover insurance on defaults.

Employer participation involves distributing information to employees and maintaining membership in the U.S. Chamber. An employer is not required to handle applications, process loans, guarantee loans, assume liability or do any administration.

The employee must pay $45 to apply for a loan. The student must be accepted or enrolled at least half time in courses leading to a degree or a diploma, must maintain satisfactory academic progress and have good credit or have a cosigner with good credit.

If an employee receives a ConSern loan and later leaves the company, the loan remains in effect even though the borrower no longer may be connected with a participating company.

Interest payments begin 30 days after the loan check has been disbursed. The borrower may defer repayment of the principal for up to four years while the student is in school. A ConSern loan may be repaid at any time with no prepayment penalty.

In 1989, ConSern expects to offer enhancements to the existing loan program. These include a fixed-payment option, a life-insurance option, education-loan consolidation and a home-equity option that would permit tax deductibility of interest charges.